Unveiling Synergy Gains in Divestitures Using Options Market Information1

We use stock and options information to decompose and provide a practical measure of the market's beliefs about the different sources of value creation from divestitures. We find that divestitures generate economically significant synergy gains that exceed $1 billion for both acquirers and sellers. These gains are partially offset by negative new information that the divestiture announcement reveals about their stand‐alone value. In contrast to prior findings, which indicate that divestitures create little to no value, we find that divestitures create significant value, and they can serve as an important strategic tool, which can create more value than mergers and acquisitions.